Testing Time For Reserve Bank Of India

The decision of the Reserve Bank Of India to keep the repo rates unchanged has come as a surprise to some.

Because the way inflation based on the Consumer Price Index has remained above six percent and the banks of the world are continuously changing their interest rates, it was
expected that the Reserve Bank of India would also reduce its rates at least. would increase by twenty-five basis points.

But the Reserve Bank says that at present inflation is under control, foreign investment is coming, the economic growth rate remains strong as expected, so there is no need for any change in the repo rates.

The Reserve Bank has called this decision as pressing the pause button. That is, according to the conditions, steps will be taken to change the repo rates.

The Reserve Bank has actually taken this decision on the advice of the Confederation of Industries.

This decision has undoubtedly brought a sigh of relief to those people who have taken loan from banks for home, vehicle, business etc.

In the last financial year, the repo rates were increased six times with the aim of controlling inflation.

This has already increased the burden on the borrowers. Actually change in repo rates affects the flow of money market. If repo rates are low, the flow of money in the market increases. With interest rates rising, people try to reduce their spending, thus inflation can be controlled.

The increase in repo rates by the Reserve Bank has shown positive results in this matter. Apart from this, those who keep money in banks for future security, they get more interest.

Thus, higher interest rates are considered good for retirees and Senior Citizens. But this is not good for the industry, because not only do they have to pay more interest on loans, but their cost of production also increases, due to
increase in the prices of commodities, people reduce their buying and selling. This way they get a double whammy.

Therefore, the industry body was in favor of keeping the repo rates unchanged. But looking at the global economic conditions, it is difficult to claim that how long the Reserve Bank will be able to stick to its decision.

The Reserve Bank has marginally increased its estimate of the economic growth rate to six and a half percent. However, all the rating agencies of the world are reducing this estimate.

The International Monetary Fund has said that the world’s economic growth rate is estimated to be three percent in the current financial year.

Obviously, in such a situation, India will have to
struggle a lot on the export front. So far, it has been able to bridge its trade deficit by cutting imports, but this cannot be put into practice for long.

Then, when the US Federal and banks of other countries are raising their interest rates to bring back their capital, India will face the challenge of keeping the value of the rupee stable. As far as inflation is concerned, it is still above the tolerance standard set by the Reserve Bank.

Therefore, it remains to be seen how long this pause button of the Reserve Bank remnains pressed.

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